What is behind the perception that student loans cannot be discharged in bankruptcy? It is true that it can be more difficult to discharge many student loans than other types of unsecured debt; the Bankruptcy Code provides a more difficult test for relief (a showing of “undue hardship”) and an extra step in the process (an “adversary proceeding,” essentially a lawsuit within the bankruptcy). However, some borrowers may not realize that discharge is still possible even under that standard and extra step.

Importantly, some loans that borrowers may think of as “private student loans” are not subject to that standard and extra step. Instead, some private loans for educational purposes can be discharged in a normal bankruptcy proceeding, just like most other consumer debts.

For example, several types of loans associated with education expenses are dischargeable in bankruptcy, like most other types of unsecured consumer debt. These types of loans for education expenses are not subject to the more difficult standard and extra step. These loans could include, for example:

• Loans where the loan amount was higher than the cost of attendance (such as tuition, books, room, and board), which can occur when a loan is paid directly to a consumer.
• Loans to pay for education at places that are not eligible for Title IV funding such as unaccredited colleges, a school in a foreign country, or unaccredited training and trade certificate programs.
• Loans made to cover fees and living expenses incurred while studying for the bar exam or other professional exams.
• Loans made to cover fees, living expenses, and moving costs associated with medical or dental residency.
• Loans to a student attending school less than half-time.

Complaints That Discharge Orders Are Being Violated

Consumer complaints raise serious questions about whether student loan companies are violating discharge orders—meaning they’re unlawfully collecting on loans even after a borrower has been through bankruptcy.

Regrettably, complaints submitted to the CFPB suggest that some of these companies might be making false statements to borrowers about the protections bankruptcy offers—or worse, even collecting on debts that have already been discharged by a bankruptcy judge.

Has Your Loan Been Discharged?

If you have been through bankruptcy and have private student loan debt that is still being collected, consider the following questions:

• Did you take out the loan for educational expenses solely for the cost of attendance (tuition, books, room, and board) or did you take out a loan that was higher than the costs of attendance? If your loan was greater than cost of attendance, your loan might have been discharged.
• Did you take out the loan to pay for education at an unaccredited school, a school in a foreign country, or unaccredited training and trade certificate programs? If so, your loan might have been discharged.
• Did you take out the loan for fees or expenses related to studying for a professional exam? Or the cost of the board examination or fees, moving, and living expenses for a medical or dental residency? If so, your loan might have been discharged.
• When you took out the loan, were you in school less than half-time? If so, your loan might have been discharged.

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